two weeks pass...
Imagine that during a crisis similar to the one we are now mired, sixteen businessmen got
together to decide what they could do among themselves. They or their clients had each received
a notice from their respective banks that their credit line was going to be reduced or eliminated;
hence bankruptcy was only a question of time. They realized that business A had needed the bank
loan to buy goods from business B, which in turn needed money to buy stuff from its own
suppliers. So they decided to create a mutual credit system among themselves, inviting their
clients and suppliers to join. When business A buys something from B, A gets a debit and B the
corresponding credit. They created their own currency, whose value was identical to the national
money, but with the interesting feature that it didn’t bear interest.
The country’s banks mounted a massive press campaign to try to squelch this
revolutionary idea. Miraculously, that campaign failed, and this little system saved the businesses
involved at the time. A cooperative was set up among the users to keep the accounts dealing with
that currency. Soon participants could also borrow from that cooperative in that currency at the
remarkably low interest rate of 1% to 1.5%. All such loans need to backed by inventory or other
collateral. Over time, the system grew to include up to one quarter of all the businesses of the
entire country.
Sixty-five years later, an American professor performed an econometric study proving
that the secret for the country’s legendary economic stability was that strange little unofficial
currency, circulating among businesses in parallel with the national money. That well-known
economic resilience was usually credited to some mysterious and unknown national
characteristic. Whenever there was a recession, the volume of activity in this unofficial currency
would expand significantly, thereby reducing the recession’s impact on sales and unemployment.
Whenever there was a boom, business in national currency expanded, while activity in the
unofficial currency proportionally dropped back again. The surprising implication of this study is
that the spontaneous counter-cyclical behavior of this little “unorthodox” system actually helped
the central bank of the country in its efforts to stabilize the economy.
This is not an urban legend, but the true story of the WIR system. The country is
Switzerland and the sixteen founders met in Zurich in the year 1934. And the system is still
operating today. The annual volume of business in the WIR currency is now about $2 billion per
year. The American professor is James Stodder from Rensselaer University. His remarkable
quantitative study33 uses more than 60 years of high quality data to prove the points made in this
story. The WIR system is also now accepting deposits and making loans in Swiss Francs, as well
as in WIR.
― Milton Parker, Friday, 8 July 2011 23:13 (fourteen years ago)